UK labour market consistent with August UK rate rise

Melanie Baker

17 July 2018

The continued picture of low unemployment and decent employment growth in today’s UK Labour Market Report looks consistent with a Bank of England rate rise in August. The slower headline pay growth is unlikely to be enough to persuade a majority of Monetary Policy Committee (MPC) members to hold back.

The labour market data, and other survey data, remain consistent with there being little slack in the UK economy. The unemployment rate is only 4.2% and other measures of slack in today’s report, such as the number of those working part-time because they couldn’t find a full-time job, also fell. Meanwhile, the activity data we’ve had over the past month or so – including purchasing managers’ indices (PMIs) – suggest that GDP growth rebounded in Q2.

The slower headline pay growth is unlikely to give the MPC too much cause for keeping rates on hold. In the June minutes, there was a focus on pay settlements data and the minutes mentioned that annual wage growth was expected to slow a bit over coming months, before strengthening again. Private sector regular pay growth actually picked up a bit, year-on-year, in today’s report.

Looking beyond the August meeting, Brexit risks remain a strong reason for caution on the UK outlook for the economy and markets. They may also ensure that we get another sizeable gap before the next rate rise.

The continued picture of low unemployment and decent employment growth in today’s UK Labour Market Report looks consistent with a Bank of England rate rise in August. The slower headline pay growth is unlikely to be enough to persuade a majority of Monetary Policy Committee (MPC) members to hold back.

The labour market data, and other survey data, remain consistent with there being little slack in the UK economy. The unemployment rate is only 4.2% and other measures of slack in today’s report, such as the number of those working part-time because they couldn’t find a full-time job, also fell. Meanwhile, the activity data we’ve had over the past month or so – including purchasing managers’ indices (PMIs) – suggest that GDP growth rebounded in Q2.

The slower headline pay growth is unlikely to give the MPC too much cause for keeping rates on hold. In the June minutes, there was a focus on pay settlements data and the minutes mentioned that annual wage growth was expected to slow a bit over coming months, before strengthening again. Private sector regular pay growth actually picked up a bit, year-on-year, in today’s report.

Looking beyond the August meeting, Brexit risks remain a strong reason for caution on the UK outlook for the economy and markets. They may also ensure that we get another sizeable gap before the next rate rise.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.